John McGinley, Jr.

Article Summary:

Choosing between arbitration or litigation.

Arbitration or Litigation?

The decision to arbitrate or go to court is core to the strategy in many contract negotiations and most commercial disputes. If the dispute involves technical issues or a small amount, or if the parties want to preserve a relationship, arbitration may be better. If it involves a complex legal issue - the interpretation of a contract clause or the intent of a law or regulation - or if the relationship is doomed, litigation may make more sense.

Because the dispute resolution method is often decided well in advance of any disagreement, the parties should consider the features of each method as early as possible.

Arbitration is informal.
In theory, arbitrators are fair-minded and have expertise in the subject of the dispute, yet they come with their own biases and beliefs. Judges cannot be knowledgeable about all technical issues; they rely on testimony and argument to decide. Although they have considerable discretion, judges are bound by rules of procedure and evidence. The rules are relaxed in arbitration. Informality may work against a party if a dispute hinges on documents and testimony that a judge would not admit as evidence, just as it may benefit a party with reason to fear tough evidentiary standards.

The right to appeal is limited in arbitration.
In court, the loser may appeal. Ordinarily, the loser will have no such right in arbitration. Parties in arbitration should assume that the award will be final.

Arbitration is generally faster and less expensive.
An arbitrated dispute can be resolved in a matter of months. Arbitration proceedings may, however, drag out, hostage to arbitrator, attorney and witness availability. Litigation can take years, but once a hearing has started, it usually continues until it is completed.

Arbitration is not inexpensive.
The parties pay the arbitrators, the court reporter and sometimes a facility charge. If an outside organization administers the arbitration, it levies fees proportional to the amount in dispute. Large, complex cases can generate high costs in addition to the attorneys' fees that the parties would incur with either approach.

The judicial process may promote settlement.
A party's litigation costs may exceed the value of the potential award. The possibility that both parties could end up with a net loss may be enough to bring them to the negotiating table. At various points in the judicial process, they are required to discuss settlement, often with the judge's help. This is rarely the case in arbitration.

This information should not be relied upon as a substitute for individual legal advice.

John McGinley, Jr. is a Member of Eckert Seamans Cherin & Mellott, LLC's Business Division. Mr. McGinley has been a trial attorney for over 30 years and has extensive experience in corporate, business, real estate, and professional liability matters. Mr. McGinley is a fellow of the American College of Trial Lawyers, as well as a member and past governor of the Academy of Trial Lawyers of Allegheny County. He is director of Pittsburgh Steelers Sports, Inc. and Wilson-McGinley. He is also chairman of Ballymoney & Company, a business that develops and manages real estate properties. He is currently an Adjunct Professor at Duquesne University School of Law. For more information, contact www.eckert

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